by Elise Schmidt
As a business owner or facility manager, you probably approve and/or manage multiple projects each year, all with a common goal of staying within budget. There are many ways to competitively bid projects, and we have found over the years that unit price bidding has many advantages – both during the bidding process and throughout the construction phase.
What exactly is unit price bidding? It is a unit price contract with estimated quantities of work outlined on the bid form. The contractor will be paid for actual quantities of work performed and as verified by the consultant and/or owner representative. As part of the unit price contract, contractors are required to provide copies of all material load tickets, delivery tickets, and bills of lading.
What are some benefits of unit price bidding?
- Apples-to-Apples Comparison: Unit price bidding is a fair basis for competitive bidding where contractors are bidding on the exact same scope of work. This allows for thorough review and comparison of all bids.
- Built-In Contingencies/Fair Change Orders: Unit price bidding allows designers, consultants, and/or engineers to build in project contingencies for any unknown items that may occur during construction. It also ensures that you are not paying for unknown items up front. Some of the biggest unknowns that can significantly impact project cuts are undercut and/or stabilization/base repairs. Estimated bid quantities are calculated from field measurements gathered during the data collection phase of the design and then refined with the assistance of the Drafting Department. If there is a higher degree of unknown to the bid item, it will be rounded up to give the client a bit of leeway in the budget. An example of a bid item with a higher degree of unknown would be subgrade undercutting or, in many cases, repair or replacement of work below the grade. Contractors tend to prefer detailed and complete plans and specifications as they provide a better understanding of the project, allowing them to bid more accurately and competitively. Contractors also have less risk with their bid. There is no need for them to add unnecessary costs to cover incidental or assumed items since every item of work is spelled out on their bid form. Building in contingencies also allows for fair change orders. Unforeseen items on projects can, and often do, occur in the field. Unit pricing eliminates the potential for contractors to gouge or overcharge for extra items since these items were already included in the design phase. This also reduces the risk of projects going over budget by planning for contingencies up front. Unit pricing allows for accurately priced credits coming back to the facility and a more efficient approval process for both the facility and the contractor. The incidence of change orders is reduced when there is a unit cost for each item of work. If something runs over, it is figured at the agreed upon cost in the contract. Unit prices can allow for quicker approval processes both for you and for the contractor. Prices are locked in, so contractors cannot inflate prices through change orders.
- Accuracy/Detail: Unit price bidding creates more accurate bids for each individual item of work. It forces contractors to read and understand the specification. It also reduces the risk that a contractor will miss items in their bid. A thorough review of the unit pricing before award of the project will ensure the costs cover the scope of work versus the unknowns of a lump sum bid. There are fewer assumptions with a unit price bid. Unit price bidding requires a skilled designer to ensure accuracy and detail with the plans and specifications. All work items are accounted for and a cost is budgeted and associated with each item of work. If there is a large variance, an analysis of unit prices post-bid and prior to award can yield savings by clarifying the work on a post-bid addendum and requesting new pricing.
- Cost Control: Unit price bidding helps ensure owners are only paying for products installed and contractors are fairly compensated for all work completed. The owner also has a higher level of clarity, so they know and understand how their funds are being allocated or spent. With a unit price contract (and proper project management), you have the advantage of monitoring project costs on a daily or weekly basis. Clients can make minor adjustments to the scope of work or project size after award and it is easy to control costs. When items on the bid form are rounded up slightly over exact field quantities, it gives the client some cushion with the budget to make minor adjustments to the scope of work during construction. A properly managed unit price contract should be at or under the as-bid budget.
- Competitive Pricing: Benchmark has seen more competitive pricing when each work item is broken out and accounted for during the design phase. It allows for a more thorough analysis of unit prices and market prices, while providing insight into how aggressive contractors are bidding.
- Cost Savings/Flexibility: Unit price bidding allows for flexibility to alter the scope/project limits if something unforeseen occurs during construction. Through unit price bidding, it is easy to add or subtract areas of work and know the cost impacts right away (no need to wait for a change order or credit from the contractor).An analysis of unit prices can lead to cost savings by revising or eliminating an item of work that can be accomplished in another way. For example, the contractor bid $7,000 for a small 24-inch deep drainage inlet replacement. As it turned out, they had priced it using a precast unit. When asked if they were able to build them from a precast bottom and brick/block for the remainder of the structures, the price on the change order was $2,750 each — a net savings of $8,500. Unit price bidding allows for quick and efficient cost adjustments to the project if a different or better design option presents itself in the field during construction.
As you can see, while there are many advantages to unit price bidding, the quality of your bid is only as good as your plans and specifications. Detailed and accurate design documents are essential for a successful project.
We understand that every project is different and should be scoped and planned out to ensure costs stay in line with budgets. Unit pricing is one way to make that happen simply and easily.
For your next project, consider partnering with an expert and taking advantage of their experience and skill to develop a plan and specification, properly bid the work (including a thorough scope of pricing), and manage the project to ensure success in both cost and quality.